Germany sticks to guns in EU debt crisis

23rd September 2011, Comments 0 comments

Germany stuck to its guns on the EU economic crisis Friday, saying that cutting deficits had priority over growth and urging patience for a new Greek rescue package to be implemented.

But German Finance Minister Wolfgang Schaeuble acknowledged there could be adjustments to "conditions" of the new package.

"Apparently we have different numbers" from what was forecast for Greece when the rescue plan was agreed on July 21, Schaeuble said.

"It would surprise me if the conditions for a disbursement of the next tranche of aid in September had changed, but not if the conditions for an additional program for Greece had changed."

Eurozone leaders and private creditors agreed at an emergency summit on July 21 to give Greece a new 159-billion-euro ($215 billion) bailout as they sought to avert a potential default that could spread the debt crisis worldwide.

The deal offers Greece another 109 billion euros in funding -- on top of last year's 110 billion euro rescue -- and a restructuring of banks' holdings of Greek debt which will save it another 50 billion euros.

Schaeuble stressed that he wanted to wait first for a new report by the European Union, the European Central Bank and the International Monetary Fund on Greece's progress on implementing austerity reforms before anything was decided.

He fended off criticism from Washington and elsewhere about EU indecisiveness in the face of possible defaults and the fracturing of the eurozone.

"We in Europe are generally on the right path, especially we in Germany," he said, rejecting the notion that Europe's tough push for correcting fiscal deficits and debt is killing economic growth.

"It's more important to combat the real causes for the crisis... high deficits," he said. "It's very clear that you cannot combat the crisis by amplifying the causes."

He stressed that the new Greek package, which reschedules debt held in private hands and expands the European Financial Stability Fund, aimed at helping both countries and banks, was on course to be accepted by EU governments within a few weeks.

It is crucial now to implement the July plan "with great seriousness", he said. Other than that, "It does not make any sense to speculate on the next steps."

He insisted Germany's approach had the backing of the G20, which was forced to issue an unplanned statement of reassurance to markets late Thursday after a day of strong criticism over the handling of the crisis.

All those at a G20 dinner on Thursday night -- which produced the communique -- welcomed Europe's push for the July 21 package.

"We Europeans were quite the focus of attention at the meeting," Schaeuble said, adding that there had been "broad consensus" that the correct focus was on ballooning public deficits rather than growth.

At the same briefing, Deutsche Bundesbank President Jens Weidmann said worries about a global economic slump were overblown.

"The situation is currently much better than the sentiment," he said. "A new recession is in my opinion unlikely."

Weidmann also pushed back against pressure to help Greece and other heavily indebted eurozone countries to keep spending.

Stimulus spending with huge deficits "is not an adequate answer," he said, adding that countries must also address their lack of competitiveness and the markets' lack of confidence in their financial stability.

"Financial help only buys time, but cannot solve the fundamental problem," he said.

© 2011 AFP

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